Getting a Loan in Australia Might be Easier Than You Think

When you need a personal loan, time is of the essence. Whatever the reason, the temptation is there to grab the first loan offer you get.

But to avoid getting stuck in a bad financial situation, it’s important to take a beat and do some research. The first step is to understand all of the terms that are associated with the loan document.

Stick with us for an easy-to-read primer on all the financial terms you need to know before signing on the dotted line.

Fixed or variable interest rate

The interest rate on your loan will be either fixed or variable. A fixed interest rate won’t change throughout your repayment period no matter what happens in the market. This provides some security as you know your payments will stay consistent. However, if rates go down, you’ll still be paying the higher figure.

A variable rate changes as the market does. Higher interest rates will cause your payment to increase and mean more money paid out in interest over the term of the loan. The flip side of this is that when interest rates go down, you could save money.

Secured or unsecured loan

If you choose a secured loan the lender will require you to put up some form of collateral. This needs to be something that’s worth at least as much as the loan amount. If you default on your loan or fail to pay it back on time, the lender is within their rights to repossess your asset and sell it off to recoup their investment.

An unsecured loan does not require collateral, but your interest rate will likely be higher. You may also be asked to provide a guarantor (more on that later). And, you’re not off the hook if you default. The lender can still take you to court to recoup the money lent to you.

Loan guarantor

A loan guarantor is otherwise known as a co-signer. This is a person who will become liable for the balance of your payments if you default on your loan. It can be challenging to find someone willing to do it, but often having a guarantor gets you the best possible interest rate.

Think long and hard before asking a loved one to sign on as a guarantor for your loan. If things go sideways, it can destroy the relationship. However, nearly everyone needs a guarantor at least once in their lives because lenders often request one if it’s your first loan.

Loan term

When you sign your loan papers, you agree to a set term for repayment. Each monthly payment will include some amount of principal (the amount that was borrowed) and interest. Typically, loan terms run for 12, 24, 36, 48, or 60 months.

Loans with a shorter term typically offer lower interest rates. If you know you can pay your loan back quickly, this is a good way to pay the least possible amount of interest overall.

A loan with a longer term will mean lower monthly payments, but you pay more interest by the time you’re done. It’s also true that carrying open loans can make it difficult to secure any further credit, so don’t let your loan term extend so long that you struggle to get a financing for a home or new car when you’re ready.

It’s best to choose the shortest loan term that you can comfortably swing. Don’t try to game the system by taking a long repayment period and then paying the loan off sooner than expected, as many personal loans assess penalties for paying early.

Early exit fee

The early repayment charge is called an early exit fee. Lenders assess it because they count on extracting every possible penny of interest out of you. When you pay up early, the lender misses out on hundreds, if not thousands, of dollars.

Not all providers charge an early exit fee, though. Loans with variable interest rates usually don’t, for example.

This is one of the most important things to determine when you’re shopping around for a personal loan. The more flexibility you can retain for yourself, the better. It’s hard to know what will happen for you financially over the loan term, so keeping your repayment options open just makes sense.

Loan use

When you apply for a loan, your provider will want to know what the money is for. Some products have a designated loan use. They’re not just being nosy – some loans are designed for a specific use, such as a car loan or money for home improvements.

The terms and interest for various types of loan will differ. Make sure that you can legally use the money for your intended purpose, because you could be vulnerable to fraud charges if you don’t.

Comparison rate

The comparison rate is one figure that describes the total cost of the loan, including interest and fees. This can help you when comparing different loan offers. Though the interest rate may look fantastic on one, it’s possible that there are many extra fees that make it a less competitive offer.

Some loans charge an application fee or a monthly service fee. All charge a fee for late or missed payments, and this amount differs. Use the comparison rate to determine how much each loan will cost you in real dollars.


A personal loan can be a lifesaver when you need it, but it will be around for at least a year and probably more. Doing your research and understanding the financial terms associated with the loan helps ensure that you get the best possible deal.